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Catherine Austin Fitts
Catherine Austin Fitts on Moral Investing and the Coming Equity 'Crash-Up'
With Anthony Wile - October 13, 2013
The Daily Bell is pleased to present this exclusive interview with Catherine Austin Fitts
Introduction: Catherine is the president of Solari, Inc., publisher of The Solari Report, and managing member of Solari Investment Advisory Services, LLC and Sea Lane Advisory, LLC. Catherine served as managing director and member of the board of directors of the Wall Street investment bank Dillon, Read & Co. Inc., as Assistant Secretary of Housing and Federal Housing Commissioner at the United States Department of Housing and Urban Development in the first Bush Administration, and was the president of Hamilton Securities Group, Inc. She graduated from the University of Pennsylvania (BA), the Wharton School (MBA) and studied Mandarin Chinese at the Chinese University of Hong Kong.
Daily Bell: Thanks for speaking with us again, Catherine. Update us a bit on what's happening with Solari.
Catherine Austin Fitts: The Solari Report is doing very well. At Solari we're focused on the complete balance sheet and income statement of an individual and a family, including their intellectual and human capital. If you read Kiplinger, they're very much focused on the official reality. If you talk to people on the Solari Report, we're looking at a much bigger picture of reality. I think for many years it's made people think that we're overly complicated. The NSA scandal has moved many people from thinking, "Oh, it can't really be that bad." As a result, the Solari Report is becoming much more fashionable and much more understandable. So that's been very exciting for me.
Daily Bell: You continue to host fascinating guests on the Solari Report. Any particular interviews that really stand out?
Catherine Austin Fitts: I just did a series called The Breakaway Civilization, Part I and Part II, with Joseph Farrell. That really helped my subscribers understand the divergence in the economy between what I call the legacy systems and the "breakaway civilization," Richard Dolan's term. Joseph Farrell is a very smart guy. He has spent a lot of time trying to understand the breakaway civilization, what they're up to and what their technology is.
Every quarter we do a series on the equity markets with my partner, Chuck Gibson. These have helped people get an overall framework of some of the key issues in the financial markets, including the turn in the bond market and what's going on both in the North American equities and the emerging markets equities. We're going to do emerging markets coming up at the end of the month. So that's been very good.
Daily Bell: What do you see as crux investment issues currently? What are you concerned about? Inflation?
Catherine Austin Fitts: The thing I watch the most right now is interest rates because we are coming into what will probably be a very significant turn. The bond market has had yields falling to the point where we've seen real interest rates at a negative rate. Interest rates have come up this year so far. They're still very much in a channel but it's difficult to imagine that the wind is going to be in our sails with respect to bond prices anymore. There are also serious credit issues. If you talk about legacy systems and then a breakaway civilization, the legacy systems were financed with debt and if the resources have basically been shifted out and over into "NewCo" then that's going to be an equity model. We're literally coming into what I consider to be a planetary debt for equity swap. So the question for all of us is how do we navigate the turn? When do you leave the bond market and when does the equity increase occur? We've seen North America equity markets rising and the emerging markets falling this year. I think it's still very early but I watch that carefully.
We're seeing a tremendous divergence in the economy in North America between those portions of the economy that are adapting new technology and growing and the rest of the economy. In some places you've got a boom and in other places you're literally in a great depression. A lot of the great depression places have been carried by government debt. As the budget starts to crunch down there's real questions about how that's going to work.
The other thing I watch is what the divergence means to bond credits and to equity valuations. If you look at the indices you don't really see it. If you look inside the indices you see some enormous splits in quality and value going on. So those are the big things I'm watching right now.
Daily Bell: What is your take on Janet Yellen? Will she make a good Federal Reserve head? If she takes an inflationary stance, won't that aggravate the price inflation already present in the US economy?
Catherine Austin Fitts: I use scenario planning for investment strategy and the most common scenario I've used for the last ten years is what I call "the slow burn." The slow burn is a world in which for most people income is flat or falling and expenses are steadily rising. It's a debasement scenario. And the reality is the central banks have been able to have a quite liberal monetary policy because we've been able to offset that with labor deflation. So by globalizing labor and instituting technology you have tremendous deflationary pressures, which offset very generous monetary policy.
Now, if you look at the Fed's monetary policy over the last three years it's driven by a very political basis, not as a monetary phenomenon so much. Starting in the '90s a decision was made to move significant amounts of capital out of existing systems in the developed world and literally trillions of dollars of financial fraud was engineered to do that. As a financial phenomenon it was quite clever and trillions have literally been moved out between the fraud and the bailouts. I think what the Fed has been doing with quantitative easing is running a shredding operation where they buy up the fraudulent mortgage securities paper and are shredding it. If you look at the Treasury, they've run a very tight regulatory process where that money doesn't seep out on Main Street. It's quite phenomenal the way they've managed to control it. I think one of the big questions is where is that money going to go now? It certainly looks to me like a great effort is being made to make sure it goes into equities, sort of keeps the bond market afloat and goes into equities. So I look it as a very political move.
What Yellen does next I think will really be dictated by what they need to do to keep the US government financed. And the clear message from the American people is 'we prefer debasement to tax.' You can balance the budget with fiscal measures or you can balance the budget by the Fed just buying bonds and if you look at the Fed's balance sheet, I think they have a much greater capacity to buy bonds. If you look at all the money that was stolen, the breakaway civilization has plenty of money to buy bonds. So I think Yellen is someone who's going to keep the same policy going and is going to be relatively liberal with monetary policy. Yellen's not going to have a big face-off with Congress, who at this point is in a real pickle in trying to come up with fiscal solutions. I think part of it is, again, the American people prefer debasement to taxation.
Daily Bell: With all its disasters, why does the Fed persist?
Catherine Austin Fitts: I would say so far the Fed's policies have worked for what they're intended to do. We've moved a tremendous amount of money out of the economy. We've now basically run through the statute of limitations or done whatever management needed to cut the cords so that what I call the legacy systems can't get the money back. So the financial coup d'état has been successful and now the cover-up is pretty much over and successful.
So now you have big decisions. You have two economies. Before this started what I call the legacy systems had $100 trillion of liabilities and $100 trillion of assets – now, I'm just pulling those numbers out of the air – and the coup moved $40 trillion of assets over into NewCo, if you will. Now we've got the legacy systems trying to reconcile $60 trillion of assets to $100 trillion of liabilities and there is a long, drawn-out, grinding process by which some people will get 50 cents on the dollar, some people will get zero cents on the dollar, some people will get 100 cents on the dollar. It's just a very difficult, complex and tangled political scene as to how that's going to all happen. Meantime, NewCo, with $40 trillion dollars, is investing and going gangbusters. NewCo is enjoying an unprecedented boom, investing in lots of new technology and new frontiers, including space. So I think the next step is to manage the lowering of expectations in the legacy systems. That's basically what the administration and the Fed are going to be doing for the next couple years, is just gutting their way through retirees' disappointment.
Daily Bell: Where do you stand on Obamacare? Is it going to be the disaster that many forecast? Is it going to snuff out a recovery?
Catherine Austin Fitts: Well, the goal of Obamacare is to control. There are three things. Number one, Obamacare was created to create a framework that would allow significant reduction of costs and benefits under Medicare over time and healthcare over time; number two, Obamacare was to provide much more control over both the medical establishment and the population at large; and then, three, to do it in a way that will protect corporate profits. So if you look at different predictions of where healthcare expenses would go – I think Karl Denninger said at one point a year or so ago, in a relatively short period of time US Medicare expenses would be several multiplicities of the GNP. It's clearly a system that makes no economic sense. It's not just that people are aging. If we eat food that has little nutrition and provide healthcare in which pharmaceutical companies are allowed to charge many multiples of what they charge in other countries you're going to get a financial train wreck, which is where we're headed.
So I think the goal was to reconcile that and do it in a way that favors corporations and control. There are also a lot of efficiencies that technology can bring inside of that. It's a very ugly picture. I think it's going to be extremely bad for the economy, particularly small business. If you look at the leadership they've wanted to centralize as much as possible into large business so maybe that's not bad for them, because the more money they have running through the publicly traded stock, the better off for them. But it's going to be very painful for the small business area.
Now, there's a wildcard here and that is if you look at the people grappling with Obamacare, they're also grappling with smart meters, they're also grappling with chemtrails, they're also grappling with food safety regulations and cuts in the federal budget and some discovering that they've lost money in their investments and assets ... it's on and on and on. If you go around the entire financial ecosystem, they're getting hit within every line by the same pro-centralization policies that ultimately go up to the same people. And what's beginning to happen is that people who were always too busy and never noticed and didn't want to look at this or didn't want to go there are finally just sitting back and saying, "These guys are nuts. They're just nuts." So you're seeing a fundamental change in consciousness that is very positive. It's one of the reasons they haven't been able to win on gun control. You have too many solid, middle-class citizens saying, "At this point the only power we have comes out of the barrel of a gun."
So I think Obamacare is going to backfire. It's very unpredictable how it's going to happen and what it's going to look like. It's going to be pretty devastating for small business and for many families so it's not going to be good for the economy of small business and the individual. Do I think it will snuff out the recovery? No. I think it will simply destroy the economics for a whole world of people who were productive.
Daily Bell: How can the US go into a recovery when so many financial institutions have been propped up by the Fed and not allowed to fail?
Catherine Austin Fitts: No. I don't think the banks are fragile. What happened was they were asked to do a job, they did it and now they've taken all the fraudulent paper and sold it to the Fed or torn it up because they had so much in federal credit arbitrage earnings during this period. So I don't think they're fragile.
Now, we've certainly run a big derivatives book but if you look at the biggest part of the derivatives book it's interest rate swap and my read on most of those the derivatives is they're basically backstopped by the US government. The federal credit stands behind a lot and that really gets you back to the question of the legacy systems, which is: We've stripped government of all the assets and moved all the liabilities back in; what's the end game? And that speaks to the creditworthiness of the governments in the developed world. It doesn't speak to generally the whole economy because, as I said, there are plenty of assets reinvesting outside and in other places. So it certainly puts us in a position where the creditworthiness of a lot of sovereign debt depends on government military might and the ability to debase a variety of players. It doesn't have a whole lot to do with fundamental economics, necessarily. How that end game works out is the same question. If you've got $60 trillion of assets and $100 trillion of liabilities, and those liabilities include the debt, the question is, who's going to take the haircut? Is it going to be the retirees or the creditors or both? And, of course, debasement allows you to haircut the creditors without defaulting, so to speak.
Daily Bell: Give us your take on The Jumpstart Our Business Startups Act or JOBS Act. One aspect of the JOBS Act was the removal of the decades-old ban on general solicitation, ratified by the Securities and Exchange Commission, which enables entrepreneurs to publicly advertise their business opportunities via mainstream and new media channels in search of investment capital. Essentially, companies can utilize a 506(c) exemption to raise an unlimited amount of capital from up to 2,000 accredited investors. Do you think this will spark a surge in venture capital financing activity? Will it help the US jumpstart a real economic recovery or just fuel a stock market boom as the trillions of dollars sitting on the sidelines is drawn into a "resurgence of America" promotion?
Catherine Austin Fitts: What we have happening is a fundamental change in the speed at which we can turn bits to atoms and atoms to bits. So I can put a piece of CAD software or 3D software into a machine and the machine will look at the wrench I give to another machine and it will print out another wrench exactly alike. If you look at it across all the different tools, from fabrication technology to new composite materials to robotics to lasers, we're reaching a critical mass of the economic costs dropping and the speed of learning accelerating. This means we can take a lot of the tools we built in the high technology corridors – whether it's around Boston or Silicon Valley – and we can move them into the heartland. So we have companies working on driverless cars and digital highways and developing windows that are digital and respond to the sun during the day.
In this kind of growth when you have this kind of technology available at a much lower price point – we're watching the fabrication technology drop tremendously in price – if you want to go really fast and prototype and build out infrastructure, the best way to do it is to make capital available to early venture and start-ups. You let hundreds of entrepreneurs try things, have a very high failure rate and as an equity investor you optimize the result by the speed. By trying lots of things with a high failure rate, you're going to get more equity valuation. So there's a fundamental economic logic here that's happening and it's happening on top of the fact that we, as a society, have stopped the markets from working in the start-up and the small business space. There's been a lot of regulation to make it easy for Wall Street to control and make it difficult for small businesses to raise and circulate liquid equity. It's one of the areas in the economy where there really has been a very serious conspiracy.
Think of small business equity as the water that's backed up behind a regulatory dam, and the dam is pushing. If you look at what technology is doing to increase the water behind that dam – we've seen crowdfunding with donations increase dramatically and the reality is regulators can't hold that dam back for much longer. So part of this is that the water wants to burst the dam. The other thing is there's an incredible benefit – if you want to build up industrial and infrastructure in the heartland with these new tools, increasing the rate of start-ups makes a lot of sense. If you look at the stock market, we've seen significant drops in the number of companies that are in the stock market. Companies have been buying up each other. They're sitting on $1.8 trillion in cash. Getting that capital recirculated to help capitalize and develop new technology makes sense. So that's why the JOBS Act happened now and I think it reflects some very real, fundamental economics.
If you look back at the history of the US stock market you'll see two huge spikes, one in the '20s, one in the '90s, both when very profound new communication and information technology came out. I think we're in danger of another tech bubble. If you look at who's interested in putting money in this and getting lots of prototypes, the last time they did this was in the '90s. They made a fortune on fraud and they used it not only to serve some fundamental economic purposes but they used it to drain out the pension funds and the retail investors. So do I think that's going to happen? Yes. I do think it's going to happen again.
I think this is like anything else that's potentially a very big financial wave. There are multivariate goals and variables here, some of which are real economics and some of which are fraud. I do think if you come to where I live any teenager and certainly any adult can walk out of their home and with very little work buy illegal drugs and buy lottery tickets and so the fact that they can't buy equity in a community venture fund or in a small business owned and operated by their neighbor is absolutely absurd. I think we're going to have to bring some of these rules down and the question is, as a society we're going to have to grow up and be able to deal with these kinds of risks. The possibilities for small business and for rebuilding communities are tremendous. It just depends on how it's implemented.
I just finished doing a Solari Report on crowdfunding. I go into this in great length because I think this is going to be a very significant development. What I've been telling our subscribers is "Get ready, get ready, get ready" because this is going to be significant. Anybody who has any capital has to think through how they want to handle this because you're going to wake up one day and your kids, your grandkids, their friends and a lot of people in your network are going to be emailing you for capital. A lot of it's going to sound pretty wonderful. But it's early capital. It will be illiquid. It will be very risky. You've got to think through how you want to handle this because you're talking about a very high failure rate.
Daily Bell: Now that the NYSE owns the American Stock Exchange (AMEX), now known as NYSE MARKETS, it seems that between the NYSE MARKETS and the NASDAQ SmallCap exchanges Wall Street has pretty much corned the market for junior IPO listings. Do you see increased underwriting for both the junior IPO and senior IPO markets as a result of this increased venture capital activity?
Catherine Austin Fitts: It's hard to say. The biggest question before us is how the debt overhang and workout in the legacy system will impact all markets. As the government cuts back that's going to cut into a significant amount of money going into corporate earnings from government. Most people have very little understanding of the extent to which the valuations in the equity markets are dependent on government purchases or contracts that are financed through the bond market. So with that exception, I think you're going to see, again, this divergence in the economy. A lot of start-ups and junior IPOs are going to be coming from that new technology or real estate part of the market. What the larger companies will do depends on which ones make the shift successfully and which don't. So I think you're going to have strength in both markets but there is going to be a real divergence on the traditional company side between those who make the shift and those who don't. Those who don't make the shift are really going to be left flat-footed. They're going to find access to equity capital much tougher.
Daily Bell: Now that entrepreneurs can access venture capital financing without the need to be "public," and especially considering the poor reputation associated with the Over-The-Counter and Pink Sheets markets, do you see more companies choosing to remain private and look to grow their businesses and seek the more prestigious NYSE and NASDAQ junior or senior listing?
Catherine Austin Fitts: The more exemption routes companies have the more they're going to use the exemption routes to raise capital if they can. Ultimately many companies beyond a certain size are going to need liquidity so I think it's going to be mixed. There's going to be a combination. I do think that given the potential for increased volume, the Pink Sheets are going to grow one way or the other, though they certainly are not going to grow as much.
To me the big question over the next 10 years is how much movement there will be onto an Internet platform as opposed to the traditional exchanges. My guess is the shift onto the Internet's platform is going to be pretty significant. I think that's one of the reasons you're seeing this flap over of the NSA platform now. You've got a lot of parties globally realizing that this is going to be a real power shift in terms of financial flows.
Daily Bell: Does this provide securities regulators with even more of an impetus to focus on OTC and Pink Sheet listed companies as more likely to be "unscrupulous operations"? Does this help the NYSE and NASDAQ create a virtual monopoly listing process?
Catherine Austin Fitts: I think we're going to have a lot of unscrupulous things going on. The problem is going to be less on the exchanges and more on the money being laundered in. One thing we've seen is whenever you get a pump the regulators really don't do much. So we're going to be in a market where – as it has been, for example, in the mortgage market – buyer beware.
Generally, the majority of it is not going to be something the SEC is in a position to control. It's going to be more Treasury and money laundering regulations. Or the use of telecommunications with the invasion of privacy or the addition of entrainment technology. So the problems are not going to necessarily be under SEC jurisdiction; it's going to be under the jurisdiction of those who regulate money laundering and those who regulate telecommunications. Just like you've had with identity theft, you're going to have real jurisdictional issues.
Daily Bell: Let's talk about some other dominant social themes and affected investment sectors. What do you think is the likely receptivity for Global Warming or Climate Change as companies continue to propose solutions to such problems, warranted or not?
Catherine Austin Fitts: I think there's enormous pushback against the notion of using global warming as an excuse to create a global tax, or carbon tax. We just saw the new head of Australia cancel their global warming commission. So I think there's enormous pushback. On the regulatory front there's pressure to come into environmental balance. I think the pressure from the market will be tremendous. The companies that create solutions are going to be the beneficiary. We're going to make tremendous headway over the next 10 to 20 years in terms of coming into balance environmentally. One thing that will help tremendously is if we can shift out of the debt model into an equity model. The more we shift into an equity model the more companies and investors can profit from healing the environment and healing the damage we're doing, or reducing the damage we're doing to the environment.
Daily Bell: What do you think of supply side farming deals, especially the rise in organic food demand? Is the Internet Reformation causing a greater awareness amongst consumers when it comes to nutrition and taking control of their own lives?
Catherine Austin Fitts: Yes. The Internet is helping the market understand how dangerous the trends in the food supply are becoming and creating tremendous demand for organic food and fresh food. And crowdfunding may facilitate the development of global fresh food systems, not just through equity capital but also from allowing food companies and farms to do more with pre-orders. I just did a term sheet for a food business with the securities convertible into store credits. So it's going to open up a lot of very creative possibilities for people interested in getting local, fresh food to finance it.
One of the things I think, which Wall Street doesn't understand about crowdfunding, are the new alignments that are going to be created in terms of circulating knowledge and purchases and money between consumers and entrepreneurs and companies. It's going to create a whole new level of intimacy. I recommend the documentary, "The Naked Brand." It gives a good sense of the worth of that intimacy and the change from a mass media model to much more intimate relationships. It's very interesting.
Daily Bell: What did John Kerry mean by saying, as he did recently (when speaking to State Department personnel at the U.S. Embassy in Brasilia, Brazil) that the Internet was making it harder to govern? Did he mean that top men were having a more difficult time proposing government solutions? Have recent revelations about the "surveillance state" also made its harder to govern?
Catherine Austin Fitts: It's a combination of things. You have what Brzezinski calls an awakening of global consciousness. It can be very hard to trick the population in the long run but it's been generally much easier to trick them in the short run. The Internet is now making it harder to trick in the short run. After progressive trickings the population is generally getting smarter. However, you have much more invasive technology, as the NSA scandals have educated many people to. That has shifted the nature of the relationship between the people who control those networks and those who don't. So if you're a government official and you don't have financial sovereignty and you don't have information sovereignty you can't make a decision and discuss anything in private because you've got a variety of parties listening in, including private parties. So without information sovereignty it's impossible for a government to really govern.
There are crosscurrents; some are very positive, some are very negative. For example, in North America there is almost an astonishing lack of transparency about how government money works within the jurisdiction for which we vote for political representation. So if you were going to have proper transparency in America you would have annual financial statements for your congressional district as well as for the whole country. Now, the government has refused since 1995, as required by law, to produce annual financial statements let alone for the places in which you're voting for jurisdiction. And if you're going to have any kind of citizenry accountability or legislator accountability you have to have that kind of transparency and the government has gone to enormous lengths to prevent that kind of transparency while pretending that we're very transparent. So the Internet is going to make it more and more difficult for that absence of transparency to continue or be justified, and that's good. We now have a population that's very much in the dark about how things really work, and to a certain extent have wanted to be in the dark, so turning on the lights is going to be an uncomfortable process for almost everybody.
Daily Bell: What can people do to protect themselves and their wealth in such difficult times?
Catherine Austin Fitts: First, we need to see the divergence – you've got an economy that's fading and you have an economy that's growing and you need to make sure that you understand those two economies and you're migrating your assets appropriately. Because if you have all your assets in the legacy economy and none in the growing economy you're going to suffer. That's number one.
Number two, a lot of households have assets which represent liabilities of the legacy economy, whether Social Security, Medicare or others, and one of the things you have to understand is the politics – you need to not get trapped in the politics of stringing people out for those benefits. Do the best you can but don't get lost in the treadmill of trying to get promised benefits that may or may not come true. And to the extent that you can not get financially dependent on those benefits it would be very good.
The final thing is, of course, and readers know this if they're reading The Daily Bell, you're dealing in a system that includes a significant amount of corruption and fraud so you just need to be extremely careful about the quality of the people or the enterprises in which you invest or do business with and keep your assets fairly diversified in terms of both areas of the economy, or sectors, and places. Crowdfunding is going to take a while to mature. No one should ever invest anything in start-ups that they're not prepared to lose 100% of. To the extent that crowdfunding does more mature companies or real estate, it's still not a liquid security so you should assume it's high risk and keep it in an appropriate part of your portfolio.
If you have no experience with start-up or private company financing the thing to do is to organize with others in either angel networks or circles – we have something called the Solari Circle – you want to be with people who have experience in venture capital. And I think there'll be a lot of groups organizing and there already have been in terms of both circles and angel networks. So don't try to go it alone. This is one area where group intelligence can make a tremendous difference in terms of performance. So I would be very cautious.
And remember, we have a wonderful Solari Report on entrainment technology and subliminal programming. You'll have these pitches from companies that are very heartwarming and have a great group of people and they're so caring and they have a mission that just tugs at your heartstrings and then when you look at the business model it makes absolutely no sense at all. So if you want to invest in a situation like that, that's philanthropy; that's beyond speculative investment. So you want to be very careful about understanding the kind of techniques being used to promote things that are very heartwarming but are unsound investments. You're looking for something that's both inspiring in terms of the value that the product or service can add, but the financial plan and model is sound.
Daily Bell: We're focusing more at The Daily Bell on investing in keeping with one's own moral compass and the value and importance of that. Would you like to speak to that?
Catherine Austin Fitts: This is the Solari Model: A return has two components: one is the return to the investor and the other is the return to the network. So every investment has an impact on the financial and environmental and living ecosystem that it functions in. Let's say in a municipality I build a convention center and the investors make a profit from that investment but if the investment is successful it also means the general economy grows. So you have something that has a positive return to the network and a positive return to the investor. Throughout history we've been an environment where, with the exception of certain kinds of warfare, having a negative return to the network creates untold investment and political risks and if the investor or the operator is not prepared to handle those risks, ultimately it comes back to bite you.
My model of investment says always understand, if you can, your impact or return to the network and use that information to reduce risk or find opportunities to enhance return to the investor. We're going into a world where you need to understand and pay attention to impact because impact, with much faster learning speeds throughout society and much greater consciousness of impact, is going to come back around and either add to the bottom line or bite you much more quickly than it has before. We also have a new generation of kids globally who are much more aware and interested in the impact.
So the bottom line is, as an investor I think it's essential to keep an eye on returns to the network and use that information in a model where you never intentionally do anything that has either a negative return to the investor or a negative return to the network. I think you really have to say in this environment, "I don't care how much money I make on Monsanto; I don't want it and I'm not going to do it. I'm not going to finance my own death. I'm not going to finance the death of my family. I'm not going to liquidate the planet to make a quick buck." And I think that's a line that increasingly investors are going to have to draw.
What we saw throughout the '90s and 2000s was investors would be investing in something in one side of their portfolio that if successful would destroy an investment in the other side of the portfolio. So we had multiple personality disordered portfolios because as an analytical matter, institutional investors were not looking at and estimating return to the network and searching the total economic return for opportunities and to manage risk. I think those analytics are growing and going to keep on growing.
Daily Bell: How high can the stock market go if the JOBS Act turns private deals into a virtual public IPO funnel? Is that potentially the point? Do the powers-that-be want to stimulate a major stock market boom to create the illusion of prosperity and "trade" the US out of its current malaise?
Catherine Austin Fitts: Take a look at different predictions that gold is going to increase significantly in value. All those predictions assume that the monetary inflation is going to spill into commodities. And what you're watching instead is the G-7 have been essentially building a corral that forces the horses to run out through the stock market. That's why I call it a crash-up. I think one scenario we're looking at is the possibility of a crash-up scenario where that monetary increase is funneled into the equity markets. One of the most important questions there is, can you get the global population interested in investing in equities? Because the long bond market bull is coming to a close. We have two choices. We can basically write down the debt and go through a huge crunch period or we can have a crash-up in the equity markets.
Now, if you look at the technology that is coming available and is about to roll out and be integrated into the economy it's quite astonishing. So we're going to have a combination of monetary inflation and new technology and how much one adds to nominal prices or to real economic fundamental value remains to be seen. But I think the combination can drive the prices to numbers that right now look unattainable.
The $64,000 question in all of this is: Part of what's going to happen with that technology is it's going to wipe out 25 to 50 percent of the existing jobs in America. A recent study from MIT Technology Review indicated that robotics and some of this technology could influence or eliminate 46 percent of the current jobs so who knows that the number is? This technology also makes it possible for all those whose jobs are eliminated to start to learn how to take this technology and start companies and do a lot more for themselves.
So I think we're talking about an extraordinary change. We currently have an enormous percentage of both the corporate and individual economies in North America and in Europe dependent on government subsidies. How they're going to transition as subsidies go away will have a big swing on how much of a debt load the equity markets are going to have to carry. We can either write down the debt or crash up the equity market and I think everybody's preference, from investors to government policy makers to G-7 leadership, is to have a crash-up. So I think the chances of a crash-up are much better. That said, right now the tensions geopolitically are enormous and in a situation that is this fluid, anything can happen.
Daily Bell: Is what's happening geopolitically at least in part a distraction, potentially including false flags to direct the public's attention away from other matters?
Catherine Austin Fitts: Right after 9/11 – and General Wesley Clark has said this and I experienced it in my tiny little community in Tennessee – we were basically given what the battle plan was going to be – the US military taking over Eurasia. First we were going to go to Afghanistan, then we were going to go to Iraq, then we were going to go to Libya, then we were going to go to Syria and then we're going to Iran. It was all laid out for us and we seem to be following that battle plan, albeit slower than predicted at that time.
If we're going to create a global financial system and a one-world currency, you need everybody in the central banking model. You have outliers. We seem to be bringing in all the outliers. As we do, we are trying to checkmate Russia and China within Eurasia, because I think control of Eurasia is essential for maintaining global empire. At the beginning of the '90s, America had two decisions: They could essentially shift to a global empire or downsize, and they decided to shift to a global empire. And it's not so much America sovereign but the leadership of the G-7. So I think what we're watching is an effort to bring everybody into a centrally controlled central banking model. And as you can tell, a lot of people don't want the so-called Anglo-American alliance to have complete global control.
Daily Bell: Any other points you want to make or resources you want to reference?
Catherine Austin Fitts: I'm really glad you're interested in the JOBS Act and crowdfunding. As I said, I just did a large Solari Report and we've done two special reports on crowdfunding. If you're interested in looking at this topic in detail, I would check them out at Solari.com.
Daily Bell: Thanks for your time.
Catherine Austin Fitts: Thank you!
The Daily Bell
We thank Catherine Austin Fitts for this thoughtful interview. From our perspective, her interest in the JOBS Act and crowdfunding is especially significant. The JOBS Act is important in terms of what is going to come next from an industrial standpoint. For decades, entrepreneurs were not allowed to advertise their opportunities to a wide audience. As a result, those who had business ideas and a structure developed for implementation had no way of widely sharing what was available.
One could urge investors to provide capital, but even here the number of investors that one could solicit was arbitrarily capped. The entire mechanism precluded the funding of good ideas unless one had access to a larger investment structure, as Wall Street did. But for this very reason, the same networks of investors were used over and over and this gave tremendous control to those who had access to them.
Now suddenly, there is a good deal more latitude when it comes to providing investors with information about potential investments. This is important not just because it allows entrepreneurs to raise more funds but because it allows them to discuss what they have to offer with a larger network of individuals. This wider conversation will certainly yield additional contacts, capital and even business opportunities.
She tells us:
I just finished doing a Solari Report on crowdfunding where I go into this in great length because I think this is going to be a very significant development. What I've been telling our subscribers is "Get ready, get ready, get ready" because this is going to be significant. Anybody who has any capital has to think through how they want to handle this because you're going to wake up one day and your kids, your grandkids, their friends and a lot of people in your network are going to be emailing you for capital and a lot of it's going to sound pretty wonderful but it's early capital so it's very risky or it's small business stuff; it doesn't have to be start-up. And you've got to think through how do you want to handle this because you're talking about, particularly in the beginning, a very high failure rate.
This is a significant insight, as well. With increased opportunity comes increased risk. But the possibilities opened up by these new regs are powerful to be sure. It is the reason one can speculate with some confidence that those behind this change intend to create one last "Wall Street party" that will drive capital and investment forward and probably push market averages up significantly. The selection of Janet Yellen as Federal Reserve chairperson is yet another indicator of what is being prepared. Easy money and relaxed regs provide a recipe for expanded equity volume and activity. The groundwork is being laid. We see it clearly, as Catherine does.
To learn more about our perspective on the coming Wall Street Party, or as Catherine calls it – the equity crash-up – watch for upcoming articles in which we'll be tracking the macro super-trend and identifying trends, sectors and specific investments likely to outperform within the greater business cycle.